When the ‘Nanny Tax’ Applies to a Babysitter
Know when the IRS requires you to follow payroll and tax rules for your babysitter.
Many families need only part-time or occasional child care assistance, instead of a full-time nanny. And while you may think that you’re not obligated to pay employment taxes just for hiring a date night babysitter, after-school sitter, or backup caregiver, in some circumstances the IRS begs to differ.
The truth is, it’s not what you call your sitter that matters: It’s how much you pay them, cumulatively, over the course of a calendar year. If you pay any of your babysitters more than $2,100 in calendar year 2018, you’re subject to household employment – or “nanny tax” — requirements.
We understand that families can easily be caught off-guard by the notion of paying nanny taxes, so we’ll answer a few common questions we get about this topic.
I Thought Babysitters Were Exempt From Taxes. What Am I Missing Here?
There is a term, the “casual babysitting exemption,” that is used to refer to a childcare worker who does not earn enough money to be subject to payroll tax withholdings. But that doesn’t mean it applies to all babysitters: It’s merely a convenient term the IRS uses. In fact, the IRS is clear — in Publication 926 — that babysitters are listed as a type of household worker, which means taxes can come into play if you pay them enough money over the course of the year.
Why Am I Responsible for Keeping Up With Payroll and Taxes for My Babysitter?
Let’s go back to the relevant IRS statute— again, IRS Publication 926 — which states that a babysitter can be considered your household employee if you’re controlling not only what work is done, but how it is done. This applies to most babysitting situations, but may not apply to someone that regularly works for several families and requires you to schedule around their open times. Assuming your babysitter would be considered your employee, when she hits the $2,100 threshold, it becomes your responsibility to adhere to the IRS’ tax withholding requirements.
What Is the Best Way to Make Sure I Don’t Forget About Any Potential Tax Requirements?
Think about how often you may need your babysitter. Reaching $2,100 in wages for the year will happen quicker than you might think. According to Care.com’s latest data, the average national rate for a babysitter is $13.97 per hour. At that rate, if you’re hiring a babysitter for three hours a week— or more than 13 hours per month—you will end up over the IRS threshold. If this sounds like it applies to you, the safest solution is to withhold taxes from your babysitter every time she works for you. If, by the end of the year, your babysitter never actually reaches the threshold of $2,100 in gross wages (before taxes), you can simply refund them the amount of taxes you withheld.
Regardless of whether you end up needing to comply with “nanny taxes,” keeping track of the payments you make is a good idea that can save you money — because it can make it easier to apply your sitter expenses to child care tax breaks.
Do I Need to Do Anything for My Babysitter Before She Works for Me?
“If you believe your babysitter will cross the IRS threshold of $2,100 per year, we would recommend having them complete a Form W-4 so you can be prepared to withhold the correct amount of income taxes from their pay,” says Tom Breedlove, Senior Director of Care.com HomePay. “Additionally, have a conversation with your babysitter so she understands that tax withholding is a part of your employment arrangement.”